The use of heuristics in valuation practice: implications in a changing market - PowerPoint PPT Presentation

The use of heuristics in valuation practice: implications in a changing market. Dr Georgia Warren-Myers RMIT University Dr Chris Heywood The University of Melbourne. Dealing with change in valuation practice. Introduction Valuation practice: The art and the science Existing research

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The praxis of valuation in a commercial sense is one of considerable uncertainty, knowledge, fortitude, perception and interpretation using a combination of algorithms and heuristics to identify the value of a property.

Science

Prescribed methodologies

Approaches used e.g. Comparison approach, income approach

Standards e.g. IVS, RICS Red Book

Art

The value of judgements made by the valuer based on

Experience

Knowledge

Heuristics - are accepted as the construct of using rules or patterns in order make decisions or develop strategies for uncertain tasks or in complex situations (Havard, 1999).

Science and art intertwined, as a result of judgements required in the scientific approach to valuation

Research into heuristics in examining efficiencies of financial markets has developed the field of ‘behaviour finance’, which progressed theory to better understand and explain the decision-making process, and the emotions and errors of influence found in financial markets. lead by